Allyn Company purchased equipment costing 55,000 on January 1, Year 1. The equipment is estimated to have a salvage value of 5,000 and an estimated useful life of 5 years . Double-declining -depreciation is used, and all depreciation has been recorded as of December 31, Year 2. If the equipment is sold on December 31, Year 2 for 15,000 the journal entry to record the sale is: Debit Cash, 15,000 Debit Loss on Sale, 40,000 Credit Equipment, 55,000 Debit Cash, 15,000 Debit Accumulated Depreciation, 40,000 Credit Equipment, 55,000 Debit Cash, 15,000 Debit Accumulated Depreciation, 13,200 Debit Loss on Sale 26,800 Credit Equipment, 55,000 Debit Cash, 15,000 Debit Accumulated Depreciation, 35,200 Debit Loss on Sale, 4,800 Credit Equipment, 55,000 Debit Cash, 15,000 Debit Accumulated Depreciation, 22,000 Debit Loss on Sale, 18,000 Credit Equipment, 55,000

To determine the correct journal entry, we need to calculate the accumulated depreciation as of December 31, Year 2, and then compute the gain or loss on the sale of the equipment. Let's go step by step:<br /><br />---<br /><br />### **Step 1: Calculate Depreciation Using Double-Declining Balance Method**<br /><br />The formula for double-declining balance (DDB) depreciation is:<br /><br />\[<br />\text{Depreciation Expense} = \text{Book Value at Beginning of Year} \times \frac{2}{\text{Useful Life}}<br />\]<br /><br />#### **Year 1 Depreciation**<br />- Book value at the beginning of Year 1 = \$55,000<br />- Depreciation rate = \( \frac{2}{5} = 40\% \)<br /><br />\[<br />\text{Depreciation Expense for Year 1} = 55,000 \times 40\% = 22,000<br />\]<br /><br />- Accumulated depreciation at the end of Year 1 = \$22,000<br />- Book value at the end of Year 1 = \( 55,000 - 22,000 = 33,000 \)<br /><br />#### **Year 2 Depreciation**<br />- Book value at the beginning of Year 2 = \$33,000<br />- Depreciation rate = \( 40\% \)<br /><br />\[<br />\text{Depreciation Expense for Year 2} = 33,000 \times 40\% = 13,200<br />\]<br /><br />- Accumulated depreciation at the end of Year 2 = \( 22,000 + 13,200 = 35,200 \)<br />- Book value at the end of Year 2 = \( 33,000 - 13,200 = 19,800 \)<br /><br />---<br /><br />### **Step 2: Determine Gain or Loss on Sale**<br /><br />The equipment is sold for \$15,000 on December 31, Year 2. The book value at that time is \$19,800. The gain or loss is calculated as:<br /><br />\[<br />\text{Gain/Loss} = \text{Sale Price} - \text{Book Value}<br />\]<br /><br />\[<br />\text{Gain/Loss} = 15,000 - 19,800 = -4,800<br />\]<br /><br />This is a **loss** of \$4,800.<br /><br />---<br /><br />### **Step 3: Prepare the Journal Entry**<br /><br />The journal entry to record the sale includes:<br />1. Debit **Cash** for the amount received (\$15,000).<br />2. Debit **Accumulated Depreciation** for the total depreciation recorded (\$35,200).<br />3. Debit **Loss on Sale** for the loss amount (\$4,800).<br />4. Credit **Equipment** for the original cost (\$55,000).<br /><br />The journal entry is:<br /><br />\[<br />\text{Debit Cash, } 15,000; \text{ Debit Accumulated Depreciation, } 35,200; \text{ Debit Loss on Sale, } 4,800; \text{ Credit Equipment, } 55,000.<br />\]<br /><br />---<br /><br />### **Final Answer:**<br />The correct option is:<br /><br />**Debit Cash, \$15,000; Debit Accumulated Depreciation, \$35,200; Debit Loss on Sale, \$4,800; Credit Equipment, \$55,000.**